It’s Hard Being a Feature and Not a Product in Tough Times
Posted by Bob Warfield on September 24, 2008
Automatic (WordPress) are acquiring IntenseDebate, a Disqus competitor. These products are add-ons to blogging tools. They enable richer commenting facilities for the blogs. Interestingly, these tools reach across blogging platforms and give comments a life of their own. ReadWriteWeb predicts that the popularity of WordPress, combined with the ability of IntenseDebate to work with other platforms could make it the de facto standard for commenting pretty quickly, a real problem for competitors like Disqus who don’t have that level of access to the market. Mathew Ingram also thinks things are tough for Disqus, and he uses it.
In older times, VC’s used to ask whether you had a feature, a product, or a business. In the minds of many, having a feature was something not worth investing in. You needed at least a product, and preferably a vision for how that product would lead to an entire business with many products.
The Internet Bubble clouded those waters considerably. Investors work making money investing in features, and they preferred lighter weight development efforts that could get to market and demonstrate real traction sooner. As the old saying goes, “A rising tide lifts all boats.”
Now here we are in what some are calling the “nuclear winter” economy. The rules are changing quickly. The tide is no longer rising. In fact, there’s a lot of pressure on companies. It’s a tough time to be raising money at the moment if yours is not one of the deals that qualifies as a “flight to quality.”
Yes, it validates the market, yada, yada. However, even in good times, Disqus must now cope with the danger that IntenseDebate can grab market share so much more quickly riding the coattails of WordPress that it’s hard to impossible to keep up. That can lead them to be acquired. And so on.
Look for more acquisitions of startups by startups in these tough times. It’s times like these that cash is king. Either public companies with lots of cash acquire heavily devalued players, or startup companies use cash to acquire really distressed properties at pennies on the dollars. I predicted this trend would accelerate last month, but I see it accelerating even more in this economy.
Meanwhile, those that do not wish to be acquired (or worse), will need to focus on putting together the best possible execution they can. Some will be tempted to hunker down, but I am not a big believer in that strategy for tough times. Startups and software companies cannot cut their way to growth and success. They may merely prolong themselves in crude suspended animation to slow the deterioration.
Everyone, in tough times, faces this question of whether to hunker down, or drive forward. One of my favorite Jack Welch quotes is this one:
“The time to put the pedal to the metal is when everyone is hunkering down…this is a chance to widen the gap…we just breathe in our blood everyday, now’s the time to change the game.”
Fred Wilson says it’s not “game over” for Disqus, its just game changing. Fred shows a nice graph of why IntenseDebate would want to be acquired (they were way behind Disqus). He goes on to say:
I firmly believe that most innovation comes from companies that are fighting for their survival and new customers without a safety net. And that certainly describes Disqus.
Wilson is an investor in Disqus, so he’s putting a brave face on it, but you have to conclude the valuation just dropped tremendously. He quantifies total penetration for these kinds of services as 50K-100K. WordPress has millions of blogs all by itself and has made some of the pivotal features of IntenseDebate and Disqus automatic for all of those blogs. Suddenly Disqus will be the one far down on Fred’s usage graph.